Intention to Make a Profit and 'Business' in Section 65(2)(A) of the Income Tax Act 1976

Abstract

Is an “intention to make a profit” necessary for there to be business income within the meaning of section 65(2)(a) of the Income Tax Act 1976? English cases on an analogous provision suggest intention to make a profit is not required. Literal interpretation of the New Zealand provision tends to support this conclusion. However, starting from the case of Commissioner of Inland Revenue v Watson [1960] NZLR 259 (Henry J), the courts have found such an intention is necessary. Section 65(2)(a) of the 1976 Act is reproduced in a similar form in section CB1(1) of the Income Tax Act 2007. In 2009, the problem of defining when an economic gain should be taxable as business income remains controversial under the 2007 Act. An intention to make a profit remains a touch-stone for New Zealand courts.

Keywords: business income, intention to make a profit, income tax act 1976, tax law

JEL Classification: K34